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Behavioral Finance

Markus Glaser (), Markus Nöth () and Martin Weber
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Markus Glaser: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Markus Nöth: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre, Postal: L 5, 2, D-68131 Mannheim

No 03-14, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: Behavioral finance as a subdiscipline of behavioral economics is finance incorporating findings from psychology and sociology into its theories. Behavioral finance models are usually developed to explain investor behavior or market anomalies when rational models provide no sufficient explanations. To understand the research agenda, methodology, and contributions, this survey reviews traditional finance theory first. Then, this survey shows how modifications (e.g. incorporating market frictions) can rationally explain observed individual or market behavior. In the second section, the survey will explain the behavioral finance research methodology -how biases are modeled, incorporated into traditional finance theories, and tested empirically and experimentally- using one specific subset of the behavioral finance literature, the overconfidence literature.

New Economics Papers: this item is included in nep-cbe, nep-exp, nep-fin, nep-hpe, nep-pke and nep-rmg
Date: 2003-09-12
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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